The Hr Audit 3r2f23

The HR Audit The MEARIE Conference 2013

Nancy Chase, Partner, Risk Consulting, KPMG LLP

June 20, 2013

Agenda  The HR Landscape – Industry / HR risks and challenges  Why an Audit? − Governance requirements and expectations − The audit - what it is and what it is not!  What to Expect – Criteria and sources – Approach – Results – Key Success Factors  Closing Comments © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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The HR Landscape

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Industry Trends and Challenges  Demand for reliable, renewable, sustainable, and efficient power generation  New technologies and operating models  Rapid pace of change  Aging infrastructure / significant investment required  Safeguarding health and safety  Aging workforce  Cost optimization focus

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Impact on Human Capital Management  New / different skill sets required  Leveraging of new technologies  Loss of corporate memory / knowledge due to turnover  Increased competition for candidates  Less committed / more transient workforce  Expanded use of outsourcing  Limitations on performance measures and reporting  Integrating cultures and workforces  Retaining and engaging multi-generations

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Changing Technology and Work Arrangements

Source: Economist Intelligence Unit study as commissioned by KPMG International: Rethinking Human Resources in a Changing World, 2012

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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HR is Going Mobile Compared to 3 years ago, how is technology being used by your company’s HR function?

Source: Economist Intelligence Unit study as commissioned by KPMG International: Rethinking Human Resources in a Changing World, 2012

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Retention – Key Priority

40%

believe HR’s #1 focus for the next three years must be retaining crucial skills and experience within the business

but only

26%

believe their company excels at retaining key talent today

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Technology – Transforming HR What HR technologies are becoming more common in your organization?

Web-based and mobile HR platforms

69% Technology to capture performance reviews and other workplace reports

68% Social network sites to recruit talent

65%

Workforce data analytics used for business intelligence

57% Social media to reach alumni

54% Delivering business applications via the “software as a service” and Cloud models

49%

Source: Economist Intelligence Unit study as commissioned by KPMG International: Rethinking Human Resources in a Changing World, 2012

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Six Areas of Priority 1

2

3

4

5

6

40%

Retaining crucial skills

26%

Expanding the global workforce

23%

Adopting new technologies

Workforce planning

Succession planning

Managing a flexible workforce

20%

20%

20%

Source: Economist Intelligence Unit study as commissioned by KPMG International: Rethinking Human Resources in a Changing World, 2012

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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The “Big Three Challenges” for HR 1

Balancing Global and Local ■ Managing, hiring and identifying talent globally ■ While retaining local knowledge and insights

2 3 3

Managing a Flexible and Virtual Workforce ■ While maintaining employee loyalty ■ And continuing to provide career development opportunities Retaining the Best Talent ■ Maintaining employee engagement in the face of a less committed, more flexible workforce

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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The “Big Three Opportunities” for HR 1

The power to transform HR through technology ■ Mobile, online, self-service HR to drive efficiencies and reduce costs ■ Interactive online training programs to cost-effectively enhance the learning experience ■ Using social media to access new sources of talent and shift the company’s image to attract a new generation of employees

2 2 3 3

Data-driven HR

■ Introducing workforce analytics that provide business-critical data ■ Implementing advanced metrics to measure ‘return on human capital’ ■ Using social media and other interactive tools for ‘listening’ to the employee environment and gathering data about their level of engagement

Seizing the opportunity to transform HR into a strategic player ■ Delivering a unique and differentiated people management strategy that’s aligned with the organization’s goals ■ Focusing relentlessly on identifying ways to add value to the rest of the business

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Why an Audit?

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Impact of Risks and Trends on Governance  Fundamental role of the Board = stewardship of the organization to create shareholder value, including overseeing the management of the business in the pursuit of the organization’s objectives  In this context, the Board is interested in: – Compliance and regulatory requirements – Human capital development strategies (from attraction to succession) – Optimizing skill sets and responsiveness to stakeholder needs – Performance management and ability

 Many of the key challenges facing the power and utilities industry relate to human capital – the Board has an obligation to understand: – How these risks are identified and managed (i.e. how effective are our HR practices) – How HR practices contribute to the bottom line (i.e. the efficiency factor) © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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The Value of the Internal Audit  What

Internal Audit Is:

− independent, objective assurance − focused on areas of greatest significance or risk − helps the organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance − clearly linked to the business strategy

Internal Audit Is Not: − a policing function − interested in adding more bureaucracy / more control at all costs − purely compliance focused

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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The Three Lines of Defence

Board/Audit Committee Senior Management

1st Line of Defence

2nd Line of Defence

3rd Line of Defence

Financial Control

Regulator

Quality

External Audit

Risk Management

Internal Audit

Management Controls

Internal Control Measures

Security

Inspection Compliance

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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What to Expect

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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The Audit Process

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Common Audit Objectives and Scope  To assess the effectiveness of human capital management practices in helping to ensure that required critical skill sets and talents are in place to meet current and future requirements in a cost-effective manner.  To assess the effectiveness and efficiency of HR practices in ensuring that consistent, reliable, relevant, and timely information and advice is provided to HR decision-making.  Scope can include: – Attraction and recruitment – Engagement and retention – Performance management – Human capital planning / talent management strategy – Ethics and values – Labour relations – Termination and dismissal © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Audit Criteria  The standards against which HR processes and practices are assessed.  Expressed in of reasonable expectations for HR processes and practices to achieve expected results and outcomes related to human capital management within the organization.  Developed with reference to: – recognized control frameworks (e.g. COSO) – relevant legislation / regulatory requirements – organizational policies – leading practices

Key Success Factors: Objectives and scope focused on key risk areas Recognized and defensible audit criteria used to assess current practices

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Common HR Audit Procedures  Interviews  Benchmarking – HR programs – HR size and structure

     

Process walkthroughs Documentation review Control testing Employee / stakeholder surveys Data analysis IT access and system testing

Information obtained through each audit procedure is analyzed against the audit criteria to enable a conclusion. © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Example Audit Criteria Criteria Plans, practices, and/or systems are in place to identify the number and type of staff and skill sets required for current and future operations. HR components of operational plans are linked to strategic and business requirements, reflect available financial resources, and are based on proper demographic analyses and other information. Critical positions have been identified and succession and/or career development plans have been developed for each. Mechanisms to assess and monitor employee satisfaction and morale are in place. The HR function provides consistent, reliable, and timely advice and information for analysis, planning, and decision making purposes. Opportunities to increase process efficiency are periodically identified and implemented. Performance evaluation processes align employee goals and performance with organizational objectives and priorities and require objective assessments of actual performance against goals at least semi-annually. Roles, responsibilities, and abilities are clearly defined, communicated, and understood. © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Results of the Audit  Audit report will provide commentary on practices that are working well, as well as provide recommendations for any areas for improvement or issues identified.  Provides management and the Board with assurance on: – the effectiveness of key controls – the efficiency of established processes – the performance of the HR function and the extent to which the organization manages its human capital in accordance with defined policies / expectations – resolution of weaknesses identified

 Additionally can showcase the contribution of the HR function in ing the achievement of the organization’s overall objectives.

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Key Success Factors  Be open with risks, challenges, concerns – sharing this information helps focus the audit on areas that can bring you the most value  Identify peer organizations for benchmarking purposes  Review the planned criteria and ask clarifying questions when necessary  Advise your team of the audit and its objectives – reiterate that it is not an individual performance assessment  Identify critical documents and interviewees that will help the audit team assess each criteria  Be open to suggestions for improvement  Develop a formal action plan to respond to recommendations, monitor progress, and report on this progress to EMT/Board

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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In Conclusion…

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Final Thoughts….  HR audits can highlight: – How human capital strategies and practices the business’s priorities – The true value of the HR function and how it is measured – The adoption of technologies to drive efficiencies

 HR audits can also: – Provide for additional investment – Save costs down the road by identifying areas for improvement and proposing solutions

 Use the HR Audit as an opportunity to validate what you think is working well and to assist addressing areas of concern or uncertainty.  that internal auditors are inherently “advising/consulting” by the very nature of their work. The internal audit has the added benefit of providing assurance over your HR practices.

© 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. KPMG CONFIDENTIAL.

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Thank you Nancy Chase, Partner, Risk Consulting KPMG LLP (613) 212-2817 [email protected]

KPMG CONFIDENTIAL The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2013 KPMG LLP, a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms d with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are ed trademarks or trademarks of KPMG International.